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KEN MILLER
OKLAHOMA STATE TREASURER
INVESTMENT POLICY
JUNE 30, 2011
Investment Policy
Office of the State Treasurer
Page 1 of 13
KEN MILLER
OKLAHOMA STATE TREASURER
Investment Policy
June 30, 2011
1. Mission Statement:
It is the policy of the State Treasurer to invest public funds in a manner which will
provide the maximum security with the best investment return, while meeting the daily
cash flow demands of the State and conforming to all state statutes governing the
investment of public funds. The investment process will be carried out through
competition, proper oversight and financial safeguards.
2. Scope:
This investment policy applies to all funds of the State entrusted to the State Treasurer by
specific statutory authority. This policy also applies to the investments of state agencies
when they request that the State Treasurer act as their agent. Only investment transactions
included in the list of Authorized Investments (Section 9) are covered by this policy.
These funds are accounted for in the Audited Annual Financial Report and include:
2.1 Funds Included:
2.1.1 General Fund
2.1.2 Trust and Agency Funds
2.1.3 Capital Projects
2.1.4 Permanent Funds
Investments on behalf of Permanent funds are included in this policy to
the extent that the investing entity has requested that the State Treasurer
act as their agent and the investment is included in the list of Authorized
Investments (Section 9).
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2.2 Funds Excluded from this Policy:
As noted above, certain State agencies have specific statutory investment authority
and their own investment objectives. These agencies have adopted their own
investment policies; accordingly, these funds are excluded from this policy:
2.2.1 Permanent Funds
2.2.2 Pension Trust Funds
Investments on behalf of Permanent funds are excluded from this policy to
the extent that the investing entity has requested that the State Treasurer act
as their agent and the investment is not included in the list of Authorized
Investments (Section 9).
3. Prudence:
Investments shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence, discretion, and intelligence exercise in the management of
their own affairs, not for speculation, but for investment, considering the probable safety
of their capital as well as the probable income to be derived. The standard of prudence to
be used by an investment officer shall be the “prudent person” and/or “prudent investor”
standard and shall be applied in the context of managing an overall portfolio. An
Investment Officer acting in accordance with written policies and procedures approved
by the State Treasurer and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided
deviations from expectations are reported in a timely fashion and appropriate action is
taken to control adverse developments.
4. Objectives:
Given the Authorized Investments (Section 9) permitted under law, the primary
objectives, in priority order, of the State's active investment program shall be:
4.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments
of the State shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. To attain this objective, the State will diversify its
investments by investing funds among a variety of securities offering independent
returns and among various financial institutions.
4.2 Liquidity:
The State Treasurer's investment portfolio will remain sufficiently liquid to enable the
State to meet all operating requirements which might be reasonably anticipated.
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4.3 Return on Investment:
The State Treasurer's investment policy shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic cycles,
commensurate with the State’s investment risk constraints and the cash flow
characteristics of the portfolio.
Securities shall generally be held until maturity. Securities may be sold due to liquidity
needs of the portfolio; to minimize loss of principal; or to improve the efficiency, quality,
yield, or target duration in the portfolio.
5. Delegation of Authority:
Authority to manage the State’s investment program is derived from 62 O.S. § 89.1a et
seq. Management responsibility for the investment program is vested with the State
Treasurer. The State Treasurer is directed to invest the maximum amount of funds under
his control consistent with good business practice.
The authority to perform duties related to the investment of State funds may be delegated
by the State Treasurer to an Investment Officer. The Investment Officer shall engage in
investment transactions only in accordance with statutes, administrative rules, this policy,
and procedures approved by the State Treasurer. The Investment Officer shall not
perform or supervise any accounting functions, data processing functions or duties related
to the documentation or settlement of investment transactions. In the absence of the
Investment Officer, a staff person designated by the State Treasurer as a backup
investment officer shall assume responsibility for daily investment of funds. Written
authorization to invest by the Investment Officers is forwarded to all authorized dealers
and financial institutions. The State Treasurer may, at his discretion, appoint an
investment advisory committee.
5.1 Investment Procedures:
The State Treasurer shall establish a separate written investment procedures manual
for the operation of the investment program consistent with this policy. The
procedures should include reference to: safekeeping, master repurchase agreements,
wire transfer agreements, banking service contracts and cash flow forecasting and
collateral/depository agreements. Such procedures shall include explicit delegation of
authority to persons responsible for investment transactions. No person may engage
in an investment transaction except as provided under the terms of this policy and the
procedures established by the State Treasurer.
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6. Ethics and Conflict of Interest:
All employees involved in the investment process shall refrain from personal business
activity or other activities that could conflict with proper execution of the investment
program, or which could impair their ability to make impartial investment decisions. In
accordance with the law and internal policies, employees shall disclose any conflict of
interest or potential conflict of interest and shall sign a non-collusion affidavit relating to
the performance of functions of the Office of State Treasurer. See OST Policies and
Procedure Manual Chapter 3, Section C. The Office of the State Treasurer has adopted,
and employees shall abide by, the rules of conduct dictated by the Ethics Commission (74
O.S., Ch.62, App. § 257:1-1-1 et seq.)
7. Authorized Dealers and Financial Institutions:
The State Treasurer shall maintain a current list of approved financial institutions
authorized to provide investment services. In addition, a list will also be maintained of
approved security broker/dealers, selected by credit worthiness to provide investment
services in the State of Oklahoma. These may include primary dealers, or regional
dealers that have a minimum net capital as detailed in Procedures for Authorized Dealers
and Financial Institutions. All financial institutions and broker/dealers approved for
investment transactions must supply the State Treasurer with audited financial
statements, proof of Financial Industry Regulatory Authority certification, proof of
Oklahoma registration, a completed broker/dealer questionnaire, certificate of having
read the State’s investment policy and anti-collusion affidavits. Anti-collusion affidavits
shall be maintained on file as required by 62 O.S. § 89.9. An annual review of the
financial condition and registrations of qualified financial institutions and broker/dealers
will be conducted by the State Treasurer. A current audited financial statement is
required to be on file for each financial institution and broker/dealer with which the State
invests.
8. Competitive Bidding:
Investment activities shall be conducted with approved financial institutions and security
broker/dealers utilizing a system of competitive bidding to the extent practicable taking
into account the need to use sound investment judgment. Obtaining, documenting, and
retaining quotations shall be made in accordance with approved procedures.
9. Authorized and Suitable Investments:
The State Treasurer is permitted under 62 O.S. § 89.2 to invest in the following classes of
securities:
9.1 United States Treasury Bills, Notes and Bonds and obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government or any of its agencies and instrumentalities
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9.1.1 Maximum maturity of 10 years.
9.2 United States Government Agency Securities
9.2.1 Issued by one of the following agencies:
9.2.1.1 Federal National Mortgage Association
9.2.1.2 Federal Home Loan Bank
9.2.1.3 Federal Farm Credit Bank
9.2.1.4 Federal Home Loan Mortgage Corporation
9.2.1.5 Government National Mortgage Corporation
9.2.1.6 Student Loan Marketing Association
9.2.1.7 Small Business Association
9.2.2 Senior debt and mortgage-backed pass-through securities (MBS).
9.2.3 Rating must be Aaa, AAA, or the equivalent
9.2.4 Maximum maturity of 10 years for senior debt.
9.2.5 Purchases may not exceed fifty percent (50%) of the total funds available
for investment, with the exception of obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government.
9.2.6 Not more than thirty-five percent (35 %) of the total funds available for
investment shall be invested in any one issuer, with the exception of
obligations fully insured or unconditionally guaranteed as to the payment of
principal and interest by the United States government.
9.2.7Not more than forty percent (40%) of the total funds available for
investment shall be invested in mortgage-backed pass-through securities.
Permissible investments include securities issued by the Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) or Federal National Mortgage Association (FNMA)
with an average life not to exceed seven (7) years based on Bloomberg
Prepayment Speed using street consensus at the time of purchase. In the
event that street consensus is unavailable from Bloomberg, a publicly
available model shall be used and documented to determine the prepayment
speed and average life of a security.
9.3 Collateralized or insured certificates of deposit and other evidences of
deposit.
9.3.1 Issued by a bank, savings bank, savings and loan association, or credit union
located in this state.
9.3.1.1 Amounts uninsured by the FDIC must be collateralized (see
Collateralization Section 10.0).
9.3.1.2 Issued for up to 365 days, excluding weekends and holidays.
9.3.1.3 Not more than $35,000,000 may be invested in certificates of
deposit in any one financial institution as specified in this
paragraph, subject to the discretion of the State Treasurer to
approve a greater amount.
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9.4 Negotiable certificates of deposit.
9.4.1 Issued by a nationally or state-chartered bank, a savings bank, a savings and
loan association or a state-licensed branch of a foreign bank.
9.4.2 Short-term debt rating must be at least “A-1” by S&P or, “P-1”by Moody’s,
or the equivalent.
9.4.3 Maximum maturity of 180 days.
9.4.4 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.4.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in any one financial institution as specified
in this paragraph.
9.5 Bankers' acceptances.
9.5.1 Eligible for purchase by the Federal Reserve System
9.5.2 Short-term debt rating must be at least “A-1” by S&P and, “P-1”by
Moody’s, or the equivalent.
9.5.3 Maximum maturity of 270 days.
9.5.4 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.5.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in any one commercial bank.
9.6 Commercial paper
9.6.1 Short-term debt rating must be at least “A-1” by S&P and“P-1”by Moody’s,
or the equivalent.
9.6.2 Maximum maturity of 180 days.
9.6.3 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.6.4 Purchases shall not exceed five percent (5%) of the outstanding paper of an
issuing corporation.
9.6.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in the commercial paper of any one issuing
corporation.
9.7 Obligations of state and local governments, including obligations of Oklahoma
state public trusts.
9.7.1 With respect to obligations of Oklahoma State Trusts, must possess the
highest rating from at least one nationally recognized statistical rating
organization.
9.7.2 Maximum maturity of 30 years.
9.7.3 Purchases shall not exceed ten percent (10%) of the total funds available for
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investment.
9.7.4 Not more than five percent (5%) of the total funds available for investment
shall be invested in the obligations of any one issuing government.
9.7.5 The interest rate on variable rate securities must be tied to one of the
following indices: LIBOR, Fed Funds, Treasury Bills or Commercial Paper,
and must reset no less frequently than quarterly.
9.7.6 The above restrictions are subject to the discretion of the Treasurer.
Securities must not be less than investment grade at purchase.
9.8 Repurchase agreements and tri-party repurchase agreements.
9.8.1 Counterparties must have a minimum short-term debt rating of ‘A-1’, ‘A-
1+’, or the equivalent by both Moody’s Investor Service and Standard &
Poor’s and are either:
9.8.1.1 diversified securities broker-dealers who are members of the
National Association of Securities Dealers having $5 billion in assets
and $350 million in capital and subject to regulation of capital
standards by any state or federal regulatory agency; or
9.8.1.2 a bank, savings bank or savings and loan association having $5
billion in assets and $500 million in capital and regulated by the
Superintendent of Financial Institutions, or through an institution
regulated by the Comptroller of the Currency, Federal Deposit
Insurance Corporation, or Board of Governors of the Federal
Reserve System.
9.8.2 Must be collateralized (see Collateralization Section 10).
9.8.3 Counterparties must have a signed Master Repurchase Agreement
9.8.4 Maximum maturity of fourteen (14) days excluding weekends and holidays.
9.8.5 Purchases shall not exceed thirty percent (30%) of the total funds available
for investment.
9.8.6 Not more than ten percent (10 %) of the total funds available for investment
shall be invested with any counterparty.
9.9 Money market mutual funds and short term bond funds
9.9.1 Only SEC registered 2(A) 7 funds are eligible.
9.9.2 Rating must be “AAA”, or the equivalent.
9.9.3 Investments consist of
9.9.3.1 obligations of the United States government and U.S.
government sponsored enterprises and obligations fully insured
or unconditionally guaranteed as to the payment of principal and
interest by the United States government or any of its agencies
and instrumentalities.
9.9.3.2 repurchase agreements collateralized by obligations of the
United States government and U.S. government sponsored
enterprises.
9.9.3.4 purchases shall not exceed thirty percent (30%) of the total
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funds available for investment.
9.9.3.5 not more than ten percent (10%) of the total funds available for
investment shall be invested in any one fund.
9.10 Bonds, notes, debentures or other similar obligations of a foreign government.
9.10.1 Must be listed as an industrialized country by the International
Monetary Fund and for which the full faith and credit of such nation
has been pledged for the payment of principal and interest.
9.10.2 Shall be rated at least A- or better by Standard & Poor’s Corporation
or A3 or better by Moody’s Investors Service, or an equivalent
investment grade by a securities rating organization accepted by the
National Association of Insurance Commissioners.
9.10.3 Maximum maturity of 5 years.
9.10.4 Purchases shall not exceed 2.5% of the total funds available for
investment. In no circumstances shall investments be made in bonds,
notes, debentures or any similar obligations of a foreign government
that:
9.10.4.1 is identified as a state sponsor of terrorism by the United States
Department of State, or
9.10.4.2 any authoritarian or totalitarian government the sovereign
powers of which are exercised through a single person or group
of persons who are not elected by any form of legitimate
popular voting.
10. Collateralization for Certificates of Deposit and Repurchase Agreements:
10.1 Certificates of Deposit
10.1.1 Securities eligible for pledging under 62 O.S. § 72.5 include:
10.1.1.1 obligations of the United States government and U.S.
government sponsored enterprises;
10.1.1.2 obligations of this State or of an Oklahoma county,
municipality, or school district; an instrumentality of this State
or of an Oklahoma county, municipality or school district;
10.1.1.3 general obligation bonds of other states
10.1.2 The initial collateralization level for collateral securities is 110% of
the amount deposited with the financial institution plus the interest
due at maturity, in excess of the FDIC-insured limit.
10.1.3 Collateral instruments eligible for pledging under 62 O.S. § 72.5
include:
10.1.3.1 letters of credit issued by U.S. government sponsored
enterprises acceptable to the State Treasurer.
10.1.3.2 surety bonds issued by certain qualified insurance companies
acceptable to the State Treasurer.
10.1.4 The initial collateralization level for collateral instruments is 100% of
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the amount deposited with the financial institution plus the interest
due at maturity, in excess of the FDIC-insured limit.
10.1.5 Additional limitations are subject to the discretion of the Treasurer.
10.1.6 A collateralization level of 100% must be maintained.
10.1.7 Collateral securities must be held at a Federal Reserve Bank which
serves Oklahoma, a Federal Home Loan Bank which serves
Oklahoma or an approved safekeeping bank.
10.2 Repurchase Agreements and Tri-party Repurchase Agreements
10.2.1 Transactions for repurchase agreements must be conducted on a
delivery versus payment basis.
10.2.2 Collateral for repurchase agreements must be delivered to the State
Treasurer’s master custody institution.
10.2.3 For a tri-party repurchase agreement collateral must be delivered to
an approved custodian bank and held in an account for the benefit of
the State Treasurer.
10.2.4 Securities held as collateral may include obligations of the United
States government and U.S. government sponsored enterprises and
obligations fully insured or unconditionally guaranteed as to the
payment of principal and interest by the United States government or
any of its agencies and instrumentalities;
10.2.5 The initial collateralization level for securities is 102% of the
repurchase price to be paid by the counterparty and the securities
must be marked to the market daily.
10.2.6 Securities must be held free and clear of any lien and by an approved
independent third party custodian or OST's custodian acting solely as
agent for the State and is a Federal Reserve Bank, or a bank which is
a member of the Federal Deposit Insurance Corporation and which
has combined capital, surplus and undivided profits of not less than
$500 million.
10.2.7 A perfected first security interest under the Uniform Commercial
Code must be created in such securities for the benefit of the State.
10.2.8 A collateralization level of 100% must be maintained.
10.2.9 In the case of tri-party repurchase agreements, the custodian bank
may price and verify collateral but is required to provide a report of
pricing and adequacy of collateral to the Chief Investment Officer or
Comptroller within 24 hours of settlement.
11. Safekeeping and Custody:
All investment transactions shall be conducted on a delivery-versus-payment (DVP)
basis, unless specifically otherwise designated by the State Treasurer. All securities will
be held by a third party custodian designated by the State Treasurer and will be evidenced
by safekeeping receipts or other forms of confirmation. Additional limitations are subject
to the discretion of the State Treasurer.
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12. Diversification:
Diversification is desirable in order to reduce overall portfolio risk resulting from an
over-concentration of assets. The State Treasurer will diversify investments by security
type, institution and maturity. With the exception of U.S. Treasury securities and
obligations fully insured or unconditionally guaranteed as to the payment of principal and
interest by the United States government or any of its agencies and instrumentalities, no
more than 50% of the State’s total funds available for investment will be invested in a
single security type or with a single financial institution. The following diversification
limitations shall be imposed on the portfolio:
12.1. Securities of United States government sponsored enterprises, with the
exception of obligations fully insured or unconditionally guaranteed as to the
payment of principal and interest by the United States government, may not
exceed 50% of the total funds available for investment nor may more than 35%
of the total funds available for investment be invested in any one issuer.
Mortgage-backed pass-through securities may not exceed 40% of the total funds
available for investment.
12.2 Collateralized or insured certificates of deposit and other evidences of deposit
may not exceed $35,000,000 in any one financial institution, subject to the
discretion of the State Treasurer to approve a greater amount.
12.3 Negotiable certificates of deposit shall not exceed 7.5% of the total funds
available for investment, nor may more than 2.5% be invested in any one
financial institution.
12.4 Bankers' acceptances shall not exceed 7.5% of the total funds available for
investment, nor may more than 2.5% be invested in any one commercial bank.
12.5 Commercial paper shall not exceed 7.5% of the total funds available for
investment, nor 5% of the outstanding paper of an issuing corporation; and not
more than 2.5% of the total funds available for investment shall be invested in
the commercial paper of any one issuing corporation.
12.6 Obligations of state and local governments, including obligations of Oklahoma
state public trusts shall not exceed 10% of the total funds available for
investment; nor may more than 5% of the total funds available for investment be
invested in the obligations of any one issuing government. Above restrictions
are subject to the discretion of the State Treasurer.
12.7 Repurchase agreements and tri-party repurchase agreements shall not exceed
30% of the total funds available for investment; and not more 10 % of the total
funds available for investment shall be invested with any counterparty.
12.8 Money Market Mutual funds shall not 30% of the total funds available for
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investment; nor shall more 10% of the total funds available for investment be
invested in any one fund.
12.9 Foreign bonds shall not exceed 2.5% of the total funds available for investment.
13. Maximum Maturities:
The investment portfolio shall maintain sufficient liquidity to enable the State to meet all
operating requirements which might be reasonably anticipated. The balance of the
portfolio may be actively managed to meet return on investment objectives of the
Treasurer, respecting safety as a first priority. The portfolio shall have an average
maturity of not more than four (4) years, unless specifically otherwise designated by the
Treasurer. Individual securities shall be limited as follows:
13.1 United States Treasury Securities and obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government or any of its agencies and instrumentalities shall not
exceed ten (10) years to maturity.
13.2 Securities of U.S. government sponsored enterprises shall not exceed ten (10)
years to maturity. The average life of mortgage-backed pass-through securities
shall not exceed seven (7) years based on Bloomberg Prepayment Speed using
street consensus at the time of purchase. In the event that street consensus is
unavailable from Bloomberg, a publicly available model shall be used and
documented to determine the prepayment speed and average life of a security.
13.3 Collateralized or insured certificates of deposit and other evidences of deposit
shall not exceed three hundred sixty-five (365) days to maturity, excluding
weekends and holidays.
13.4 Negotiable certificates of deposit shall not exceed one hundred eighty (180) days
to maturity.
13.5 Bankers' acceptances shall not exceed two hundred seventy (270) days to
maturity.
13.6 Commercial paper shall not exceed one hundred eighty (180) days to maturity.
13.7 Obligations of state and local governments including obligations of Oklahoma
state public trusts shall not exceed thirty (30) years.
13.8 Repurchase agreements shall not exceed fourteen (14) business days, excluding
weekends and holidays.
13.9 Foreign bonds shall not exceed five (5) years to maturity.
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14. Internal Control:
The State Treasurer shall be responsible for all transactions undertaken and shall establish
a system of controls to regulate the activities of subordinate officials. Such control
system shall include procedures allowing for a proper segregation of duties, approval of
investment transactions, and authorizations for any deviations from policy. The control
system shall include policies and procedures designed to reasonably safeguard against the
loss of public funds arising from fraud, employee error, and misrepresentation by third
parties, or imprudent actions by employees.
As promulgated by the State Treasurer, procedures for recording investments and
auditing investment transactions are specified in the Oklahoma Administrative Code,
Title 735:15-1-1 et seq. As required therein, the internal auditor shall determine that the
State Treasurer’s investment policies and procedures adhere to state statutes, relevant
administrative rules, and other applicable policies of the State Treasurer. In addition, the
State Treasurer shall submit to independent external audits conducted by the State
Auditor and Inspector.
15. Performance Standards:
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with the investment risk
constraints and cash flow needs.
15.1 Market Yield (Benchmark):
Per (62 O.S. § 89.2(A)), all investments by the State Treasurer shall earn not less than
the rate for comparable maturities on United States Treasury obligations, unless other
provisions of law permit or require a lower yielding investment. The performance
goal is to exceed this statutory performance objective. The Cash Management and
Investment Oversight Commission, per 62 O.S. § 71.1, has adopted the Bank of
America Merrill Lynch 1 Year Treasury Index as the benchmark for the Treasurer's
securities portfolio.
16. Accounting and Reporting:
To ensure that each transaction is authorized and executed in accordance with this
investment policy, sufficient accounting and electronic records of investment transactions
shall be retained in accordance per 62 O.S. § 89.11. Such records shall be available for
inspection by the State Auditor and Inspector, the Attorney General and other authorized
law enforcement officers.
The State Treasurer shall issue periodic investment transaction and performance reports
pursuant to 62 O.S. §§ 89.2 and 89.7. Monthly and annual investment performance
reports shall describe the portfolio and strategies employed in the most recent reporting
period, and holdings shall be marked to market. Such documents shall also summarize
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recent market conditions, economic developments, and anticipated investment conditions,
as well as investment plan performance, among other items specified by statute. In
addition, the State Treasurer or his designee shall discuss investment reports and describe
investment activities before both the Cash Management and Investment Oversight
Commission and the Executive Review Committee established under 62 O.S. § 71.1.
17. Distribution and Revisions:
Copies of this written investment policy and any modifications shall be distributed to the
Governor, the Speaker of the House of Representatives, the President Pro Tempore of the
Senate, the Attorney General, the State Auditor and Inspector, the Bank Commissioner,
the Director of State Finance, and each member of the Cash Management and Investment
Oversight Commission. A copy shall be maintained in the State Treasurer's office for
public inspection during regular business hours.
18. Adoption and Effective Date:
This policy is formally adopted and takes effect June 30, 2011.

KEN MILLER
OKLAHOMA STATE TREASURER
INVESTMENT POLICY
JUNE 30, 2011
Investment Policy
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KEN MILLER
OKLAHOMA STATE TREASURER
Investment Policy
June 30, 2011
1. Mission Statement:
It is the policy of the State Treasurer to invest public funds in a manner which will
provide the maximum security with the best investment return, while meeting the daily
cash flow demands of the State and conforming to all state statutes governing the
investment of public funds. The investment process will be carried out through
competition, proper oversight and financial safeguards.
2. Scope:
This investment policy applies to all funds of the State entrusted to the State Treasurer by
specific statutory authority. This policy also applies to the investments of state agencies
when they request that the State Treasurer act as their agent. Only investment transactions
included in the list of Authorized Investments (Section 9) are covered by this policy.
These funds are accounted for in the Audited Annual Financial Report and include:
2.1 Funds Included:
2.1.1 General Fund
2.1.2 Trust and Agency Funds
2.1.3 Capital Projects
2.1.4 Permanent Funds
Investments on behalf of Permanent funds are included in this policy to
the extent that the investing entity has requested that the State Treasurer
act as their agent and the investment is included in the list of Authorized
Investments (Section 9).
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2.2 Funds Excluded from this Policy:
As noted above, certain State agencies have specific statutory investment authority
and their own investment objectives. These agencies have adopted their own
investment policies; accordingly, these funds are excluded from this policy:
2.2.1 Permanent Funds
2.2.2 Pension Trust Funds
Investments on behalf of Permanent funds are excluded from this policy to
the extent that the investing entity has requested that the State Treasurer act
as their agent and the investment is not included in the list of Authorized
Investments (Section 9).
3. Prudence:
Investments shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence, discretion, and intelligence exercise in the management of
their own affairs, not for speculation, but for investment, considering the probable safety
of their capital as well as the probable income to be derived. The standard of prudence to
be used by an investment officer shall be the “prudent person” and/or “prudent investor”
standard and shall be applied in the context of managing an overall portfolio. An
Investment Officer acting in accordance with written policies and procedures approved
by the State Treasurer and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided
deviations from expectations are reported in a timely fashion and appropriate action is
taken to control adverse developments.
4. Objectives:
Given the Authorized Investments (Section 9) permitted under law, the primary
objectives, in priority order, of the State's active investment program shall be:
4.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments
of the State shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. To attain this objective, the State will diversify its
investments by investing funds among a variety of securities offering independent
returns and among various financial institutions.
4.2 Liquidity:
The State Treasurer's investment portfolio will remain sufficiently liquid to enable the
State to meet all operating requirements which might be reasonably anticipated.
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4.3 Return on Investment:
The State Treasurer's investment policy shall be designed with the objective of
attaining a benchmark rate of return throughout budgetary and economic cycles,
commensurate with the State’s investment risk constraints and the cash flow
characteristics of the portfolio.
Securities shall generally be held until maturity. Securities may be sold due to liquidity
needs of the portfolio; to minimize loss of principal; or to improve the efficiency, quality,
yield, or target duration in the portfolio.
5. Delegation of Authority:
Authority to manage the State’s investment program is derived from 62 O.S. § 89.1a et
seq. Management responsibility for the investment program is vested with the State
Treasurer. The State Treasurer is directed to invest the maximum amount of funds under
his control consistent with good business practice.
The authority to perform duties related to the investment of State funds may be delegated
by the State Treasurer to an Investment Officer. The Investment Officer shall engage in
investment transactions only in accordance with statutes, administrative rules, this policy,
and procedures approved by the State Treasurer. The Investment Officer shall not
perform or supervise any accounting functions, data processing functions or duties related
to the documentation or settlement of investment transactions. In the absence of the
Investment Officer, a staff person designated by the State Treasurer as a backup
investment officer shall assume responsibility for daily investment of funds. Written
authorization to invest by the Investment Officers is forwarded to all authorized dealers
and financial institutions. The State Treasurer may, at his discretion, appoint an
investment advisory committee.
5.1 Investment Procedures:
The State Treasurer shall establish a separate written investment procedures manual
for the operation of the investment program consistent with this policy. The
procedures should include reference to: safekeeping, master repurchase agreements,
wire transfer agreements, banking service contracts and cash flow forecasting and
collateral/depository agreements. Such procedures shall include explicit delegation of
authority to persons responsible for investment transactions. No person may engage
in an investment transaction except as provided under the terms of this policy and the
procedures established by the State Treasurer.
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6. Ethics and Conflict of Interest:
All employees involved in the investment process shall refrain from personal business
activity or other activities that could conflict with proper execution of the investment
program, or which could impair their ability to make impartial investment decisions. In
accordance with the law and internal policies, employees shall disclose any conflict of
interest or potential conflict of interest and shall sign a non-collusion affidavit relating to
the performance of functions of the Office of State Treasurer. See OST Policies and
Procedure Manual Chapter 3, Section C. The Office of the State Treasurer has adopted,
and employees shall abide by, the rules of conduct dictated by the Ethics Commission (74
O.S., Ch.62, App. § 257:1-1-1 et seq.)
7. Authorized Dealers and Financial Institutions:
The State Treasurer shall maintain a current list of approved financial institutions
authorized to provide investment services. In addition, a list will also be maintained of
approved security broker/dealers, selected by credit worthiness to provide investment
services in the State of Oklahoma. These may include primary dealers, or regional
dealers that have a minimum net capital as detailed in Procedures for Authorized Dealers
and Financial Institutions. All financial institutions and broker/dealers approved for
investment transactions must supply the State Treasurer with audited financial
statements, proof of Financial Industry Regulatory Authority certification, proof of
Oklahoma registration, a completed broker/dealer questionnaire, certificate of having
read the State’s investment policy and anti-collusion affidavits. Anti-collusion affidavits
shall be maintained on file as required by 62 O.S. § 89.9. An annual review of the
financial condition and registrations of qualified financial institutions and broker/dealers
will be conducted by the State Treasurer. A current audited financial statement is
required to be on file for each financial institution and broker/dealer with which the State
invests.
8. Competitive Bidding:
Investment activities shall be conducted with approved financial institutions and security
broker/dealers utilizing a system of competitive bidding to the extent practicable taking
into account the need to use sound investment judgment. Obtaining, documenting, and
retaining quotations shall be made in accordance with approved procedures.
9. Authorized and Suitable Investments:
The State Treasurer is permitted under 62 O.S. § 89.2 to invest in the following classes of
securities:
9.1 United States Treasury Bills, Notes and Bonds and obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government or any of its agencies and instrumentalities
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9.1.1 Maximum maturity of 10 years.
9.2 United States Government Agency Securities
9.2.1 Issued by one of the following agencies:
9.2.1.1 Federal National Mortgage Association
9.2.1.2 Federal Home Loan Bank
9.2.1.3 Federal Farm Credit Bank
9.2.1.4 Federal Home Loan Mortgage Corporation
9.2.1.5 Government National Mortgage Corporation
9.2.1.6 Student Loan Marketing Association
9.2.1.7 Small Business Association
9.2.2 Senior debt and mortgage-backed pass-through securities (MBS).
9.2.3 Rating must be Aaa, AAA, or the equivalent
9.2.4 Maximum maturity of 10 years for senior debt.
9.2.5 Purchases may not exceed fifty percent (50%) of the total funds available
for investment, with the exception of obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government.
9.2.6 Not more than thirty-five percent (35 %) of the total funds available for
investment shall be invested in any one issuer, with the exception of
obligations fully insured or unconditionally guaranteed as to the payment of
principal and interest by the United States government.
9.2.7Not more than forty percent (40%) of the total funds available for
investment shall be invested in mortgage-backed pass-through securities.
Permissible investments include securities issued by the Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) or Federal National Mortgage Association (FNMA)
with an average life not to exceed seven (7) years based on Bloomberg
Prepayment Speed using street consensus at the time of purchase. In the
event that street consensus is unavailable from Bloomberg, a publicly
available model shall be used and documented to determine the prepayment
speed and average life of a security.
9.3 Collateralized or insured certificates of deposit and other evidences of
deposit.
9.3.1 Issued by a bank, savings bank, savings and loan association, or credit union
located in this state.
9.3.1.1 Amounts uninsured by the FDIC must be collateralized (see
Collateralization Section 10.0).
9.3.1.2 Issued for up to 365 days, excluding weekends and holidays.
9.3.1.3 Not more than $35,000,000 may be invested in certificates of
deposit in any one financial institution as specified in this
paragraph, subject to the discretion of the State Treasurer to
approve a greater amount.
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9.4 Negotiable certificates of deposit.
9.4.1 Issued by a nationally or state-chartered bank, a savings bank, a savings and
loan association or a state-licensed branch of a foreign bank.
9.4.2 Short-term debt rating must be at least “A-1” by S&P or, “P-1”by Moody’s,
or the equivalent.
9.4.3 Maximum maturity of 180 days.
9.4.4 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.4.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in any one financial institution as specified
in this paragraph.
9.5 Bankers' acceptances.
9.5.1 Eligible for purchase by the Federal Reserve System
9.5.2 Short-term debt rating must be at least “A-1” by S&P and, “P-1”by
Moody’s, or the equivalent.
9.5.3 Maximum maturity of 270 days.
9.5.4 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.5.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in any one commercial bank.
9.6 Commercial paper
9.6.1 Short-term debt rating must be at least “A-1” by S&P and“P-1”by Moody’s,
or the equivalent.
9.6.2 Maximum maturity of 180 days.
9.6.3 Purchases shall not exceed seven and one-half percent (7.5%) of the total
funds available for investment.
9.6.4 Purchases shall not exceed five percent (5%) of the outstanding paper of an
issuing corporation.
9.6.5 Not more than two and one-half percent (2.5%) of the total funds available
for investment shall be invested in the commercial paper of any one issuing
corporation.
9.7 Obligations of state and local governments, including obligations of Oklahoma
state public trusts.
9.7.1 With respect to obligations of Oklahoma State Trusts, must possess the
highest rating from at least one nationally recognized statistical rating
organization.
9.7.2 Maximum maturity of 30 years.
9.7.3 Purchases shall not exceed ten percent (10%) of the total funds available for
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investment.
9.7.4 Not more than five percent (5%) of the total funds available for investment
shall be invested in the obligations of any one issuing government.
9.7.5 The interest rate on variable rate securities must be tied to one of the
following indices: LIBOR, Fed Funds, Treasury Bills or Commercial Paper,
and must reset no less frequently than quarterly.
9.7.6 The above restrictions are subject to the discretion of the Treasurer.
Securities must not be less than investment grade at purchase.
9.8 Repurchase agreements and tri-party repurchase agreements.
9.8.1 Counterparties must have a minimum short-term debt rating of ‘A-1’, ‘A-
1+’, or the equivalent by both Moody’s Investor Service and Standard &
Poor’s and are either:
9.8.1.1 diversified securities broker-dealers who are members of the
National Association of Securities Dealers having $5 billion in assets
and $350 million in capital and subject to regulation of capital
standards by any state or federal regulatory agency; or
9.8.1.2 a bank, savings bank or savings and loan association having $5
billion in assets and $500 million in capital and regulated by the
Superintendent of Financial Institutions, or through an institution
regulated by the Comptroller of the Currency, Federal Deposit
Insurance Corporation, or Board of Governors of the Federal
Reserve System.
9.8.2 Must be collateralized (see Collateralization Section 10).
9.8.3 Counterparties must have a signed Master Repurchase Agreement
9.8.4 Maximum maturity of fourteen (14) days excluding weekends and holidays.
9.8.5 Purchases shall not exceed thirty percent (30%) of the total funds available
for investment.
9.8.6 Not more than ten percent (10 %) of the total funds available for investment
shall be invested with any counterparty.
9.9 Money market mutual funds and short term bond funds
9.9.1 Only SEC registered 2(A) 7 funds are eligible.
9.9.2 Rating must be “AAA”, or the equivalent.
9.9.3 Investments consist of
9.9.3.1 obligations of the United States government and U.S.
government sponsored enterprises and obligations fully insured
or unconditionally guaranteed as to the payment of principal and
interest by the United States government or any of its agencies
and instrumentalities.
9.9.3.2 repurchase agreements collateralized by obligations of the
United States government and U.S. government sponsored
enterprises.
9.9.3.4 purchases shall not exceed thirty percent (30%) of the total
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funds available for investment.
9.9.3.5 not more than ten percent (10%) of the total funds available for
investment shall be invested in any one fund.
9.10 Bonds, notes, debentures or other similar obligations of a foreign government.
9.10.1 Must be listed as an industrialized country by the International
Monetary Fund and for which the full faith and credit of such nation
has been pledged for the payment of principal and interest.
9.10.2 Shall be rated at least A- or better by Standard & Poor’s Corporation
or A3 or better by Moody’s Investors Service, or an equivalent
investment grade by a securities rating organization accepted by the
National Association of Insurance Commissioners.
9.10.3 Maximum maturity of 5 years.
9.10.4 Purchases shall not exceed 2.5% of the total funds available for
investment. In no circumstances shall investments be made in bonds,
notes, debentures or any similar obligations of a foreign government
that:
9.10.4.1 is identified as a state sponsor of terrorism by the United States
Department of State, or
9.10.4.2 any authoritarian or totalitarian government the sovereign
powers of which are exercised through a single person or group
of persons who are not elected by any form of legitimate
popular voting.
10. Collateralization for Certificates of Deposit and Repurchase Agreements:
10.1 Certificates of Deposit
10.1.1 Securities eligible for pledging under 62 O.S. § 72.5 include:
10.1.1.1 obligations of the United States government and U.S.
government sponsored enterprises;
10.1.1.2 obligations of this State or of an Oklahoma county,
municipality, or school district; an instrumentality of this State
or of an Oklahoma county, municipality or school district;
10.1.1.3 general obligation bonds of other states
10.1.2 The initial collateralization level for collateral securities is 110% of
the amount deposited with the financial institution plus the interest
due at maturity, in excess of the FDIC-insured limit.
10.1.3 Collateral instruments eligible for pledging under 62 O.S. § 72.5
include:
10.1.3.1 letters of credit issued by U.S. government sponsored
enterprises acceptable to the State Treasurer.
10.1.3.2 surety bonds issued by certain qualified insurance companies
acceptable to the State Treasurer.
10.1.4 The initial collateralization level for collateral instruments is 100% of
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the amount deposited with the financial institution plus the interest
due at maturity, in excess of the FDIC-insured limit.
10.1.5 Additional limitations are subject to the discretion of the Treasurer.
10.1.6 A collateralization level of 100% must be maintained.
10.1.7 Collateral securities must be held at a Federal Reserve Bank which
serves Oklahoma, a Federal Home Loan Bank which serves
Oklahoma or an approved safekeeping bank.
10.2 Repurchase Agreements and Tri-party Repurchase Agreements
10.2.1 Transactions for repurchase agreements must be conducted on a
delivery versus payment basis.
10.2.2 Collateral for repurchase agreements must be delivered to the State
Treasurer’s master custody institution.
10.2.3 For a tri-party repurchase agreement collateral must be delivered to
an approved custodian bank and held in an account for the benefit of
the State Treasurer.
10.2.4 Securities held as collateral may include obligations of the United
States government and U.S. government sponsored enterprises and
obligations fully insured or unconditionally guaranteed as to the
payment of principal and interest by the United States government or
any of its agencies and instrumentalities;
10.2.5 The initial collateralization level for securities is 102% of the
repurchase price to be paid by the counterparty and the securities
must be marked to the market daily.
10.2.6 Securities must be held free and clear of any lien and by an approved
independent third party custodian or OST's custodian acting solely as
agent for the State and is a Federal Reserve Bank, or a bank which is
a member of the Federal Deposit Insurance Corporation and which
has combined capital, surplus and undivided profits of not less than
$500 million.
10.2.7 A perfected first security interest under the Uniform Commercial
Code must be created in such securities for the benefit of the State.
10.2.8 A collateralization level of 100% must be maintained.
10.2.9 In the case of tri-party repurchase agreements, the custodian bank
may price and verify collateral but is required to provide a report of
pricing and adequacy of collateral to the Chief Investment Officer or
Comptroller within 24 hours of settlement.
11. Safekeeping and Custody:
All investment transactions shall be conducted on a delivery-versus-payment (DVP)
basis, unless specifically otherwise designated by the State Treasurer. All securities will
be held by a third party custodian designated by the State Treasurer and will be evidenced
by safekeeping receipts or other forms of confirmation. Additional limitations are subject
to the discretion of the State Treasurer.
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12. Diversification:
Diversification is desirable in order to reduce overall portfolio risk resulting from an
over-concentration of assets. The State Treasurer will diversify investments by security
type, institution and maturity. With the exception of U.S. Treasury securities and
obligations fully insured or unconditionally guaranteed as to the payment of principal and
interest by the United States government or any of its agencies and instrumentalities, no
more than 50% of the State’s total funds available for investment will be invested in a
single security type or with a single financial institution. The following diversification
limitations shall be imposed on the portfolio:
12.1. Securities of United States government sponsored enterprises, with the
exception of obligations fully insured or unconditionally guaranteed as to the
payment of principal and interest by the United States government, may not
exceed 50% of the total funds available for investment nor may more than 35%
of the total funds available for investment be invested in any one issuer.
Mortgage-backed pass-through securities may not exceed 40% of the total funds
available for investment.
12.2 Collateralized or insured certificates of deposit and other evidences of deposit
may not exceed $35,000,000 in any one financial institution, subject to the
discretion of the State Treasurer to approve a greater amount.
12.3 Negotiable certificates of deposit shall not exceed 7.5% of the total funds
available for investment, nor may more than 2.5% be invested in any one
financial institution.
12.4 Bankers' acceptances shall not exceed 7.5% of the total funds available for
investment, nor may more than 2.5% be invested in any one commercial bank.
12.5 Commercial paper shall not exceed 7.5% of the total funds available for
investment, nor 5% of the outstanding paper of an issuing corporation; and not
more than 2.5% of the total funds available for investment shall be invested in
the commercial paper of any one issuing corporation.
12.6 Obligations of state and local governments, including obligations of Oklahoma
state public trusts shall not exceed 10% of the total funds available for
investment; nor may more than 5% of the total funds available for investment be
invested in the obligations of any one issuing government. Above restrictions
are subject to the discretion of the State Treasurer.
12.7 Repurchase agreements and tri-party repurchase agreements shall not exceed
30% of the total funds available for investment; and not more 10 % of the total
funds available for investment shall be invested with any counterparty.
12.8 Money Market Mutual funds shall not 30% of the total funds available for
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investment; nor shall more 10% of the total funds available for investment be
invested in any one fund.
12.9 Foreign bonds shall not exceed 2.5% of the total funds available for investment.
13. Maximum Maturities:
The investment portfolio shall maintain sufficient liquidity to enable the State to meet all
operating requirements which might be reasonably anticipated. The balance of the
portfolio may be actively managed to meet return on investment objectives of the
Treasurer, respecting safety as a first priority. The portfolio shall have an average
maturity of not more than four (4) years, unless specifically otherwise designated by the
Treasurer. Individual securities shall be limited as follows:
13.1 United States Treasury Securities and obligations fully insured or
unconditionally guaranteed as to the payment of principal and interest by the
United States government or any of its agencies and instrumentalities shall not
exceed ten (10) years to maturity.
13.2 Securities of U.S. government sponsored enterprises shall not exceed ten (10)
years to maturity. The average life of mortgage-backed pass-through securities
shall not exceed seven (7) years based on Bloomberg Prepayment Speed using
street consensus at the time of purchase. In the event that street consensus is
unavailable from Bloomberg, a publicly available model shall be used and
documented to determine the prepayment speed and average life of a security.
13.3 Collateralized or insured certificates of deposit and other evidences of deposit
shall not exceed three hundred sixty-five (365) days to maturity, excluding
weekends and holidays.
13.4 Negotiable certificates of deposit shall not exceed one hundred eighty (180) days
to maturity.
13.5 Bankers' acceptances shall not exceed two hundred seventy (270) days to
maturity.
13.6 Commercial paper shall not exceed one hundred eighty (180) days to maturity.
13.7 Obligations of state and local governments including obligations of Oklahoma
state public trusts shall not exceed thirty (30) years.
13.8 Repurchase agreements shall not exceed fourteen (14) business days, excluding
weekends and holidays.
13.9 Foreign bonds shall not exceed five (5) years to maturity.
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14. Internal Control:
The State Treasurer shall be responsible for all transactions undertaken and shall establish
a system of controls to regulate the activities of subordinate officials. Such control
system shall include procedures allowing for a proper segregation of duties, approval of
investment transactions, and authorizations for any deviations from policy. The control
system shall include policies and procedures designed to reasonably safeguard against the
loss of public funds arising from fraud, employee error, and misrepresentation by third
parties, or imprudent actions by employees.
As promulgated by the State Treasurer, procedures for recording investments and
auditing investment transactions are specified in the Oklahoma Administrative Code,
Title 735:15-1-1 et seq. As required therein, the internal auditor shall determine that the
State Treasurer’s investment policies and procedures adhere to state statutes, relevant
administrative rules, and other applicable policies of the State Treasurer. In addition, the
State Treasurer shall submit to independent external audits conducted by the State
Auditor and Inspector.
15. Performance Standards:
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with the investment risk
constraints and cash flow needs.
15.1 Market Yield (Benchmark):
Per (62 O.S. § 89.2(A)), all investments by the State Treasurer shall earn not less than
the rate for comparable maturities on United States Treasury obligations, unless other
provisions of law permit or require a lower yielding investment. The performance
goal is to exceed this statutory performance objective. The Cash Management and
Investment Oversight Commission, per 62 O.S. § 71.1, has adopted the Bank of
America Merrill Lynch 1 Year Treasury Index as the benchmark for the Treasurer's
securities portfolio.
16. Accounting and Reporting:
To ensure that each transaction is authorized and executed in accordance with this
investment policy, sufficient accounting and electronic records of investment transactions
shall be retained in accordance per 62 O.S. § 89.11. Such records shall be available for
inspection by the State Auditor and Inspector, the Attorney General and other authorized
law enforcement officers.
The State Treasurer shall issue periodic investment transaction and performance reports
pursuant to 62 O.S. §§ 89.2 and 89.7. Monthly and annual investment performance
reports shall describe the portfolio and strategies employed in the most recent reporting
period, and holdings shall be marked to market. Such documents shall also summarize
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recent market conditions, economic developments, and anticipated investment conditions,
as well as investment plan performance, among other items specified by statute. In
addition, the State Treasurer or his designee shall discuss investment reports and describe
investment activities before both the Cash Management and Investment Oversight
Commission and the Executive Review Committee established under 62 O.S. § 71.1.
17. Distribution and Revisions:
Copies of this written investment policy and any modifications shall be distributed to the
Governor, the Speaker of the House of Representatives, the President Pro Tempore of the
Senate, the Attorney General, the State Auditor and Inspector, the Bank Commissioner,
the Director of State Finance, and each member of the Cash Management and Investment
Oversight Commission. A copy shall be maintained in the State Treasurer's office for
public inspection during regular business hours.
18. Adoption and Effective Date:
This policy is formally adopted and takes effect June 30, 2011.